Money Money Money

Money Money Money

It does make the world go round and lately folks in Fiji have been busily working on ways of short circuiting their way to lots of it! The problem as my old Uncle used to say, “Greed and AVARICE” he would thunder “It will get you EVERY time”. So sure enough, all those hopes and dreams built on the very wobbly foundations of eBay shop and various other pyramid schemes have come crashing down.

This is of course not the first pyramid scam in Fiji, but it must be the largest with estimates ranging from the $4 million reported to authorities to possibly up to $15 million with some predicting even higher numbers. What happened….. after all it was hardly a secret. The promoters were even bold enough to open store fronts in several major towns and cities. How did those in charge of our financial system allow this to get so big??

As a task force begins it’s work on untangling this terrible mess, YB will do its best to try and explain some of the reasons this occurred. We warn you it is complex as it is in fact much bigger than just eBay Shop reflecting some fundamental changes in the way in which the Fiji economy functions.

Let’s start with where the money is. To quote Willie Sutton, (famous American hold up man) when asked why he robbed banks “because that is where the money is”. Well in the past he was correct. The bulk of money in a modern financial system is held in banks. We are told in most developed economies about 5% is kept in cash and for developing nations like Fiji this might increase a little but not significantly.

These banks work in partnership with corresponding financial institutions around the world shifting funds around the globe and this in turn drives world trade. Increasingly, particularly since 9/11, the international community has realised that to control international terrorism and crime it was necessary to increase the level of controls over who held bank accounts and nature of the funds banked.

This is why over the last twenty years or so it has become more difficult opening a bank account or sending funds across borders. Driven largely by American regulators, banks and financial institutions, even in small economies like Fiji, have been forced to adopt anti money laundering measures that start with requiring to prove who you legally are. In banking speak these are KYC “know your customer” requirements. It means that for many banks any kind of criminal connection makes it hard to get an account. But that’s not all they are also required to flag if a person is linked in anyway to politics or maybe in a position in Government that might make them open to corruption.

Every day banks around the world including those in Fiji run various automated screening programs on their customer transactions looking for red flags _ any unusual transaction activity that might be linked to anti money laundering (AML), counter terrorism financing (CTF), sanction breaches, fraud, modern slavery or bribery and corruption. Red flags are then analysed and where necessary are raised with authorities, in Fiji’s case our Financial Intelligence Unit. Failure to monitor and report these transactions would be considered a breach resulting in financial penalties, jail terms or enforceable undertakings.

So that is the basis around which economies work and IF that had been the only place people could go for money the EBAY shop scam would have struggled to get off the ground or at least to the size it did.

Now there is a new place to find the money and it’s on your mobile phone! Post COVID we have seen an explosion as mobile network operators (MNO) have transformed themselves into financial institutions enabling thousands of customers to access and exchange funds without going anywhere near a bank.

Before we go into the challenges, let’s be clear, this is a great development as it has allowed many Fijians who fall into the category of the “unbanked” to actively participate in the economy. BUT………..it does present some challenges when it comes to regulation and control. Remember what we outlined above on how the global economy works.

The growth of MNO’s, dominated in Fiji by MPaisa and the smaller MyCash, accelerated rapidly when the Government, post COVID, chose to exclusively distribute support funds via these MNO’s. This got people used to the new platforms and it has grown further with the surge of remittance funds coming into the country with customers realising that sending funds to MNO accounts is easier than to traditional banks (less regulation). To give you some idea of the growth YB understands that inward remittances are averaging between $100- $120 million PER MONTH. This compares with a total in 2022 of around $1 billion.

Now we aren’t suggesting there is no regulation in the MNO space. YB understands that to open an MNO account you still need to provide identity information but what we are hearing is that the growth has been so phenomenal, authorities are struggling to keep up. This is where stories of EBAY shop agents holding large number of SIM cards linked to MNO accounts should get us all very worried. If this is true this would allow them to keep small amounts in many accounts remaining invisible to monitoring.

SO, the sum result of this is what is effectively a huge cash economy sloshing around in the MNO space and that makes it vulnerable to scams and criminal activity. For example, I am a drug dealer, and I can use my MNO accounts to receive funds and pay for stuff without any questions asked …. that’s very cool!

Not so cool for those trying to police criminal activity and not cool for tax authorities trying to collect funds to pay for public services when so many transactions can be conducted outside of the VAT, personal and corporate tax spheres. This in turn hasn’t been helped by the fact that despite massive investment in digitising tax collection and monitoring, FRCS is still struggling to manage these new systems.

As a side note YB has received reports from several retailers who are facing increasing difficulties with staff stealing funds from corporate MNO accounts.

YB stresses we aren’t saying there are NO regulations, and we are certainly not implying any deliberate wrongdoing on behalf of the MNO’s but what we are saying that the EBAY shop scam alone is waving a giant red flag that we need to urgently look how to manage what has become a critical part of the economy. The Government’s rapid appointment of a task force to investigate this is important but it needs to look wider than just this one scam AND please let’s not go in the opposite direction and squeeze the life out of this exciting new financial platform.

Truth is like with many other technology-based initiatives promoted by the previous Government, a little less haste and a lot more consultation and thought may have prevented some of these issues.

Regulation, monitoring and reporting, like with banks, must come from institutions like the Financial Intelligence Unit but does it have the physical and legislative resources to monitor this new area??

PS Some thought to monitoring fees charged by MNO’s as faced by Banks may be necessary as well.